This concept is a feature of matching models, in which it gives mathematical meaning to intuitive notions of the "thick market," where the benefits of
This concept is a feature of matching models, in which it gives mathematical meaning to intuitive notions of the "thick market," where the benefits of trading are greater the larger the number of potential counter-parties with whom to trade. One well-known application of this concept is Krugman's 1991 paper entitled "[This concept] and Economic Geography," in which it is used to explain why economic activity in a sector or industry concentrates in particular locations when locations are identical ex-ante. This concept usually enters models through a fixed cost of production, which along with monopolistic competition gives firms market power and non-zero profits. This concept is in general rejected by data on economy-, industry-, and firm-level production, which produce parameter estimates closer to Cobb-Douglas, so its use is disputed despite that models which assume this are successful. For ten points, what is this economic concept meaning that the marginal cost of production falls as the scale of production increases?
This concept is a feature of matching models, in which it gives mathematical meaning to intuitive notions of the "thick market," where the benefits of trading are greater the larger the number of potential counter-parties with whom to trade.
{Increasing Returns} to Scale (prompt on “{Returns} to {Scale}” or “{Economies} of {Scale}”)